As state support for Oregon’s universities hits rock bottom, a push for autonomy for the universities gains new momentum.

BY LINDA BAKER

ILLUSTRATION BY MARTIN GEE

In his annual State of the University address last October, Oregon State University president Ed Ray unveiled an ambitious plan intended to propel the institution into the ranks of the country’s top 10 land grant universities. By 2025, Ray said, OSU should expand its enrollment from 21,000 to 35,000 students, increase tenured faculty from 783 to about 1,500 and double research funding from $252 million to $500 million.

After describing these attributes, Ray outlined a more sobering challenge: “How do we close…[the] large gaps between our current profile and our aspirations in the next 15 years, when the only certainty is that our annual state funding will be reduced by as much as $15-$20 million during this biennium?”

The gap between academic aspirations and economic realities is one of the signature features of Oregon’s higher education landscape — and not only during this recession. Public investment in Oregon’s public universities has declined 44% over the last 15 years, and the state now ranks a dismal 46th in the country in per-student funding. As a result, public universities face a crisis in affordability and access for the state’s burgeoning college-age population and are hampered by challenges in recruiting and retaining faculty and developing innovative programs to prepare students for the 21st century global economy.

Despite perennial efforts to wring more money from public coffers, the downward spiral continues. As concern mounts over declining educational opportunities for Oregonians, another kind of initiative has caught the attention of academic administrators and policymakers, although its efficacy too is uncertain. The focus is on the historic relationship between the state and public universities — and whether that relationship should be restructured given the state’s diminishing stake in the system.

“The current governance structure reflects a bygone era when the state was almost the exclusive investor in higher education,” says Matt Donegan, co-president of Forest Capital Partners and a member of the state Board of Higher Education. “The sentiment is with the state now being a minority investor, the governance should be updated to reflect that.”

Last fall, former UO president David Frohnmayer released a report proposing to convert OSU, UO and PSU into one or more public corporations.

PHOTO BY STU MULLENBERGER

Last fall, former University of Oregon president David Frohnmayer released a report pro- posing to convert OSU, UO and Portland State University into one or more public corporations. The goal was to relieve these institutions from bureaucratic strictures, which would “give universities much more flexibility in the stewardship of limited dollars,” said Frohnmayer, who wrote the report after George Pernsteiner, chancellor of the Oregon University System, solicited solutions for improving educational outcomes in Oregon.

The idea of a public corporation for Oregon’s universities isn’t new — it was first floated in the mid 1990s when state support began to precipitously drop. Oregon Health & Science University has operated as a public corporation since 1995, and other states including Virginia and North Carolina have also adopted quasi-autonomous governance models for public universities. Nevertheless, restructuring is controversial — because of concerns about accountability and the sense that reducing state oversight doesn’t address the root problems facing the system.

“This model comes out of that clique of people who think industry can do no wrong — that everything ought to be privatized,” says Tony Van Vliet, a state board of education member and former state legislator. Instead of tinkering with governance, he says, “you have to look at the real problem, which is revenue, and address the public about what needs to be done to correct it.”

But this time around, restructuring has gained new momentum. PSU released a white paper last fall advocating a new governance model, although the public corporation was just one of several options listed. Over the next few months, the governor’s higher education reset subcommittee, part of a larger effort to rethink government in a time of economic crisis, will review those options and in June will deliver a report to the governor, says Tim Nesbitt, Gov. Ted Kulongoski’s deputy chief of staff.

“The level of interest is something we haven’t seen for many years,” Nesbitt says. “It all suggests that the question of the future and structure of higher education will be called in the 2011 session, if not answered.”

To understand why Oregon is considering moving public higher education away from public control, start with the fact that nationwide, higher education has always been a lowly stepchild in the state funding equation. According to a 2006 report by the Blue Ribbon Commission of the National Conference of State Legislators, when states dole out appropriations, higher education is the last in the queue, after Medicaid, corrections, transportation and other allocations. As a result, the authors note, in times of economic crisis, “higher education, more than any other budget item, suffers reductions.”

Add to that inferior status a slew of revenue-draining initiatives and industry declines, and the reasons for Oregon’s bottom of the barrel status come into focus. In 1990, Measure 5 limited property taxes. Four years later, Measure 11 mandated new prison construction. “The public model worked very well for a long period of time,” says Van Vliet. “Then we had crazy Measure 5, we lost our timber resources and agriculture went down, and the great shining glory of electronics started having hiccups.”

The financial impacts are written in the numbers. State support for PSU plummeted from about 44% in 1989 to 18% today. OSU receives about 14% of its budget from the state; the University of Oregon, 8.5%. Then there are the social impacts. For the first time in history, a new generation of Oregonians will be less educated than their parents, says Pernsteiner. “The older you are the more likely you are to have an associate or bachelor’s degree,” he says. “We’re one of the few places in the world where that’s true.”

“You don’t have to run a university as if it is the Department of Motor Vehicles,“ says PSU president Wim Wiewel. “It is not letting us respond creatively and entrepreneurially.”

PHOTO BY ADAM BACHER

Nationwide, the push for autonomy was a response to shaky state financing, says Michael Redding, vice president of university relations for the University of Oregon and the author of a dissertation on higher education restructuring. “It led to an interest in generating revenue to backfill public support.” Redding and other proponents of governance changes like to point out that Oregon is the state that divides university money among more than 6,300 line items — the kind of bureaucratic red tape that hampers revenue generation opportunities. “You don’t have to run a university as if it is the Department of Motor Vehicles,“ says PSU president Wim Wiewel. “It is not letting us respond creatively and entrepreneurially.” Wiewel cited as an example the challenges PSU faces in acquiring real estate. “By the time we go through the levels of approvals, the deal is long gone.”

Frohnmayer’s plan would free Oregon’s biggest universities from line item scrutiny. Instead, each would have its own governing board responsible for overseeing all operations, including setting tuition rates and admission standards and managing its own costs and revenues. Frohnmayer also advocates giving the public corporations bonding authority and possibly their own tax base.

Few dispute the value of streamlining operations or adopting business tactics. But as Nesbitt notes, restructuring in general — and the specific models in particular — raises as many questions as it answers. One question is whether universities can create efficiencies and private sector opportunities without changing the governance relationship. For example, OSU is already consolidating administrative services, increasing reliance on private fundraising and advancing industry partnerships.

There are deeper issues at stake, such as whether the public good can still be served in a system that relies increasingly on market mechanisms, including the elimination of price controls. “As a general rule, which I know no exception, tuition goes up higher and more precipitously when colleges are given more flexibility,” says Patrick Callan, president of the San Jose-based National Center for Public Policy and Higher Education. “What’s often lacking in these debates,” Callan says, ”is a consideration of the costs as well as benefits.”

Oregon Health & Science University now has the highest state medical school tuition in the country. OHSU has doubled its budget and tripled research funding since 1995, says executive vice president Steve Stadum. But it is difficult to draw a direct line between the growing stature of the university and the public corporation status, he says. “It is a mistake to think you can restructure your way out of fiscal problems,” Stadum says. In fact, in response to the current budget crisis, OHSU eliminated hundreds of jobs, cut employee benefits and made other program reductions.

The University of California Board of Regents, which operates essentially as an autonomous branch of government and is one of the models under consideration in Oregon, triggered a wave of student protest in November after proposing a 30% tuition increase.

Paul Doescher, president of the OSU faculty senate, expresses other concerns. “We are the people’s university,” he says, “so how does the new model affect accessibility for students of different ethnicities and incomes?” Doescher cited other unknowns, including the impact on retirement and health care benefits and whether the new structure would lead to a shift in faculty hiring “from the land grant to entrepreneurial partners.” The role of Oregon’s smaller campuses in any new configuration has also yet to be determined.

Proponents are undeterred. Restructuring requires “balancing institutional autonomy with public accountability,” agrees Redding. But he argues — as does Frohnmayer — that the proposed models would actually make it easier for universities to fulfill their public mission by shifting state oversight from operations management to educational performance issues, such as graduation and retention rates and student access. “This isn’t about privatization in any real sense,” Redding says. “It’s about what a new public university looks like.”

At the University of Virginia, the state puts interest on tuition into an escrow account until performance benchmarks are met, says Colette Sheehy, vice president for management and budget. In Oregon, interest earned on tuition goes into the state General Fund — a sore point for universities.

The spotlight on governance issues poses the question: What are the alternatives? Critics argue that reviving the state’s university system requires another kind of restructuring — of state financing mechanisms such as the kicker, a rebate given to taxpayers when a revenue surplus exists. “We need a stable, dedicated revenue base,” Van Vliet says. Another problem is the lack of advocacy for higher education, Van Vliet and others say.

These points aren’t lost on Frohnmayer, whose proposal calls for a state funding base of $1.55 billion per biennium — twice the amount of the current biennium. The PSU white paper also demands a state funding floor. Ultimately, these budget requirements underscore the obvious — that restructuring is only one chapter in a much longer story about how to reverse Oregon’s higher education race to the bottom.

In the current environment, stabilizing budget allocations and implementing new governance models are not mutually exclusive objectives, says Pernsteiner. “The details need to be worked out, but the public corporation is a promising way to allow institutions to serve more students in an era of very constrained resources,” he says, adding: “The path we have been following for the past 25 years is not sustainable.”

The plan proposed by the UO is straight forward, they want complete independence from any type of public input. An recent example is the UO arena project that circumvented all of the normal public contracting rules so that a big donor could have his way. If given complete freedom, the UO will quickly have a tuition rate of $35K and will only cater to a predominately a white upper class. The draw will no longer be academic excellence, but appeal for cool football and basketball teams.

Oregon universities should focus on reducing internal inefficiencies instead of an independence model where you replicate each position 7 times. Flexibility is a term that really means inefficiencies, no public accountability and unaffordable tuition rates. Administrative services (financial aid, business affairs, procurement, construction, and administration) should be consolidated to save money and reduce tuition. I agree that the state needs to get out of OUS' business given its small contribution. We need a university system that focuses on a high quality education at affordable tuition rates, not high salaries for administrators and big arenas.

BY JOE CORTRIGHT

BY JASON E. KAPLAN | STAFF PHOTOGRAPHER

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Robert S. Wiggins has joined Lane Powell as a Shareholder in the Corporate/M&A Practice Group. Wiggins is a well-known lawyer, entrepreneur, and investor with more than 30 years of experience leading and advising established and emerging companies in the Pacific Northwest. Wiggins will focus his practice on offering outside general counsel services, including general corporate and board representation, business transactions and capital events.